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Instacart is playing games with its workers’ pay (recode.net)
388 points by prostoalex on Feb 22, 2017 | hide | past | web | favorite | 348 comments



> Instead of the tipping option appearing on the checkout page as it originally had, a default 10 percent “service fee” sat in its place.

If I could take a guess, I'd say this is more related to the user experience. I hate tipping. I'd rather just attach a 10-20% fee instead of needlessly evaluating someone else's performance with every delivery.

Or better yet, I'd rather just use a company that adequately pays its own employees instead of attempting to offload a portion of that cost on its customers.


I feel like even if they paid their delivery people a reasonable wage they'd still expect tips. Ive had movers that made over 50/hour not including the cost of materials/truck/etc ask for a tip.

I was all for Uber being tip free until drivers started driving for Lyft which does tips in-app, and now all the drivers expect it.

I've always felt this way with Pizza. Most places charge a delivery fee. That itself should be the tip. If it costs more to deliver a pizza then work it into the price.


The solution is to pay them better and forbid them from taking tips. Make it clear to customers that it's not even allowed, let alone expected.

Unfortunately, I don't think tipping culture is going away any time soon.


I believe Amazon did this with Amazon Fresh. The tip option in the app went away, and when I asked the delivery person, he said their pay had been increased and they were good. No tip required. He said it with a smile on his face, but who knows if he was really dying inside.


Living in Japan, love the fact that I don't have to tip anywhere!


The worst part for me - places here in NZ are trying to introduce it. I've solved it by not going back, that that doesn't work if the practice spreads.


I also live in NZ. I've seen a few places prompt for tips but typically only in areas tourists frequent. I always just tip nothing.

I'm pretty sure they are just doing it to bait Americans.


Curious, I live in Auckland and haven't seen mention of tips except in 'hipster' cafes and I rarely see gold coins or notes. I wonder if it's less about baiting Americans and more about emulating Americans.


Non solo pizza in Parnell do a hard sell on the tip. Very much a tourist location as mentioned above.


I live in Lithuania and random places are trying to introduce it, such as news agent type of convenience store. "A pack of cigarettes and here's your tip", em, no.


>The solution is to pay them better and forbid them from taking tips. Make it clear to customers that it's not even allowed, let alone expected.

That's basically what Uber did (except for "you have to refuse once"). They tried to make it a tip-not-required zone and make everyone understand this going in. And yet still, you hear the refrain,

"What, I'm basically a cabbie. Don't you tip cabbies? Shouldn't I be getting tips?"[2] [3]

Even the media coverage comes with that implicit assumption. To paraphrase: "under the ruling, Uber drivers can solicit tips -- you know, like cabbies, duh".[1]

It's like people think that tipping cabbies is some fundamental invariant of reality rather than a default custom that can be overridden by explicit agreement. [2]

My uncle still thinks I'm a bad person because I didn't visibly tip the Lyft driver. "No, it's through the app" 'sure, sure...'.

[1] warning: browser-abusive site even with blockers: https://www.bloomberg.com/news/articles/2016-04-22/tipping-i...

[2] Characteristic example: https://www.quora.com/Should-you-tip-your-Uber-or-Lyft-drive...

[3] And in fairness, a lot of what drives the attitude is that the pay dropped so low that it effectively only works as a tipped job


I imagine the "contractor" status of Uber drivers gets in the way. If they'd bite the bullet and hire drivers as proper employees, a prohibition on taking tips might stick.


There's a restaurant in my neighborhood that does this (no tips, built into the price) and I really appreciate it. It's so much "easier" that I'm more inclined to drop in.


Just to be clear, for pizza places that charge a delivery fee, most of the time that does not go to the driver. You should still tip your driver.


Which is the problem in the first place.

Why are we taught by people to tip some personell and not to tip others?

Because the first group has a very low income. That's why. Because corporations cannot be trusted to treat their people nicely. That's why. Because the first group usually works hard and shows effort, while the others don't. That's why.

I don't mind to tip when someone has done an excellent service, but i always try to make sure my tip goes to that person directly and not some weird strange thing like a jar or a fund the corporation came up with.


> Why are we taught by people to tip some personell and not to tip others?

> Because corporations cannot be trusted to treat their people nicely. That's why.

No, it's noblesse oblige: I am well off, and therefor it is my duty to show my appreciation to those who perform services for me.


Don't neglect that you get a little bit of affirmation from it. I am the powerful money holder here, you are the person relying on charity from me to make the rent. Maybe I'll even make you dance a little for it.

Really helps cement the power relationship and emphasise the class differences.


> Because the first group has a very low income

That's the incentive to work hard so that you are not part of that group. That group doesn't have much to offer, and often didn't work hard to offer anything society valued. I knew, from an early age, that the consequence of not trying at school was ending up in a dead-end job.

> Because the first group usually works hard and shows effort, while the others don't

Citation needed - their work is hard because they have little leverage. Some have the deck stacked against them, fair enough, but that first group exists in places with less opportunity inequality, and far more welfare than in the US.

Many people spend most of their lives on their careers, trying to improve their worth to society, and offer things deemed valuable. Few go into accounting for the love of it, but because society desires accountants.

EDIT: there are exceptions. Temporary jobs held by students, people from impoverished backgrounds, or who were never motivated to succeed, low-skilled immigrants that fall into these last two categories. These are exceptional, sympathetic situations (except students, their condition is temporary), but society should seek to reduce these groups, rather than normalise them by developing some kind of coping mechanism. Welfare is a good safety net for all citizens, but low-paid work is too. The problem is groups who are stuck in ow-paid work with little opportunity to escape; in those cases it's not "greedy" corporations to do anything - it's exclusively the governments role to participate in any social engineering efforts.


>That's the incentive to work hard so that you are not part of that group.

It's an incentive, but not the solution. It's way way more complex than a "just work hard and everything will be ok" stigma.

>Some have the deck stacked against them, fair enough,

Over 80% of the world population lives in poverty. I don't know what kind of decks are dealt, but casinos would be purchasing these decks by the millions.


> "just work hard and everything will be ok" stigma

That's not a stigma, it's an ideal. There is no better solution.

> Over 80% of the world population

I was talking about capitalist america, not the world.


Fair enough. How many americans live in poverty?


Depends what measure and definition you use: https://en.wikipedia.org/wiki/Poverty_in_the_United_States


> and not some weird strange thing like a jar or a fund the corporation came up with.

BTW, if a company puts out a tip jar, by law that tip jar must actually go to the employees. The company cannot come along and take the contents of the jar for itself (and if they try, employees can sue them).


What if they cannot afford or are afraid to sue?

These people depend very heavily on having an income/job.


You could make that same argument about literally any illegal thing an employer can do to its employees. Tip jars are not somehow extra-risky.


And this fee is paying who for what?


Sometimes the company just takes it for itself. Sometimes the restaurant is contracting out with a third-party company for deliveries and the delivery fee goes to the third-party company (but, again, not to the driver themselves).


Profits


It depends on the pizzeria. Some give part or all of it to the driver, some don't. Ask the driver if you want to know.


With pizza, your solution can't work. You have to pay the driver base pay, and they get tips on top. So the base pay has to come from the menu price + delivery fee, and if you get rid of the delivery fee, it has to come from the menu price. But if you raise that, you're distorting demand by making in-restaurant purchases more expensive.


Arent in-restaurant purchases more expensive for the business, considering they need to rent space and employ waiters?

A large percentage of the pizza restaurants that deliver here offer a discount for online purchases, so tgey have essentially done what you describe.


Pizza places in the UK typically give a discount for collection from the shop, which presumably accounts for the delivery cost.

It's not expected to tip a delivery person, though some people do.


> Or better yet, I'd rather just use a company that adequately pays its own employees instead of attempting to offload a portion of that cost on its customers.

I also really dislike tipping, but in reality it's not the cost they are offloading onto customers (all the cost is paid by the customers, since costs are paid out of revenues, which come from customers), but rather they are offloading compensation decisions onto customers - since the difference between a tip and having the cost of service built into the price is that you can decide the amount of the tip.


Semantics.

There are industries where the employees are paid less than minimum wage as anticipated tips are factored into their overall compensation. If the tips do not meet the minimum wage threshold, the business is responsible for the difference. In this case, the costs (wages) are being offloaded by tips. Not to mention the industries that pay low wages as the tips subsidize a living wage.

https://webapps.dol.gov/elaws/faq/esa/flsa/002.htm


> Semantics

I don't think it is. I really don't like being involved in figuring out how much someone should be paid.


That's precisely the issue with tipping culture.


Except the money goes in a different bucket than the tips did even though it's the same amount. And both the "service fee" and tip are adjustable.


> I'd rather just attach a 10-20% fee instead of needlessly evaluating someone else's performance with every delivery.

When seattle raised the minimum wage a bunch of places started doing exactly that. I like it better.

A few places started adding on fees that go to back of house employees as well, which I'm fine with.

Apparently this didn't annoy people the way they wanted, so they just started adding in an extra fees because of the minimum wage.

I wish they would just raise their prices and pay people properly.


That's because you're doing it wrong. Don't evaluate their performance. Consider the tip a "variable buyer price-sensitivity upcharge". You're comfortable paying 20%. Me too. So: just always pay 20%, without thinking about it.

That's in fact the actual economic purpose of the tip anyways. People think it's to encourage good service, but in fact, in jobs where you can make significant money tipping, there's already competition for slots. And, either way, insurance of good service is the job of the business owner. Any way you slice it, a tip is simply a cost sharing mechanism.

Amazon Prime Now and Grubhub both ask you to "tip" their drivers before they even do the run. You can't possibly be asked to evaluate performance in those cases. I'm fine with that, too! I'm not sensitive to the amount of money we're talking about, but across all their jobs, those tips probably make a pretty significant difference.

What's not OK is transforming a "tip" to a "service charge" that is then split with other elements of the business.


Why in the world should a transaction go like this:

I just make a purchase. Now it's time to calculate the arbitrary variable buyer price-sensitivity upcharge.

Not to mention of course that charge will invariably be higher for those that are attractive. More so if they flirt.

Also tipping is not socially obligated in a lot of fields with employees who actually need the money: e.g. Fast food, bank tellers, retail employees.


You're welcome to propose other objections to tipping. I'm only addressing the one about how tipping obligates the consumer to make snap evaluations of the quality of service they've received. No, just tip 15-20% invariably. That's what you're expected to do.


> variable buyer price-sensitivity

Just go to cheaper places if you are 'price-sensitive'. Arguing 'there's already competition' doesn't make sense, it isn't a binary thing.

Are you arguing that if you can afford to pay more, you should? Isn't that socialism? This isn't how capitalism is supposed to work.


No, in fact, market segmentation by price sensitivity is a pretty basic mechanism of applied capitalism, taught to basically everyone who has ever taken a marketing class in business school.


'if you can afford to pay more, you should' is not 'market segmentation'.


No, it very much is. See, for instance, all airline pricing, which is almost shrink-wrapped around the meta-itinerary of a typical business trip. That's not "socialism". It's ruthless capitalism.


No, it still isn't. Giving an example of actual market segmentation, still doesn't make context-free tipping about market segmentation.


I don't understand this response at all. You suggested that making people who are less price sensitive pay more isn't a goal of market segmentation. In fact, it's literally the textbook example of market segmentation.


> You suggested that making people who are less price sensitive pay more isn't a goal of market segmentation

No I didn't. I said the specific thing being discussed was not market-segmentation. Venn-diagram.

> it's literally the textbook example of market segmentation

If you aren't just trying to be patronising, then please point me to a textbook that literally uses tipping as an example of market-segmentation.

Note, tipping higher amounts in different, more up-market places doesn't count, because like I already said:

> Just go to cheaper places if you are 'price-sensitive'

OP was suggesting people choose to tip higher amounts based having a higher income; regardless of venue, and regardless of social-signalling or marketing encouraging you to do so, simply because you can, and because it's a moral and socially responsible thing to do.


I recently stopped using Instacart, there wasn't a single reason, but the sum of:

1. I'm paying 15-20% more for groceries just on line-item price. The prices Instacart shows vs what you see in store are sometimes a bit less, but more often not, 20% or more more.

2. Inconsistency between what's in Instacart's catalog and what's in the store. Making special requests isn't easy and they usually just go unfulfilled as it's up to the discretion of the shopper if they want to spend the extra time to find something special.

3. Safeway.com's online store got a little bit better -- and next day delivery is usually okay with me.

4. This service fee issue to top it off -- I just don't feel like paying 20% more for stuff, 10% for delivery, 10% for a service fee, then I'm compelled to add a tip? Poor UX IMHO if the solution is to manually change the service fee to 0% and tip 10%.

5. I had an incident last year that was sorta hilarious -- I had a shopper tell me Safeway was out of ice cream. Like, completely out of ice cream -- I went to their online store at the location the shopper was supposed to be and they list 400 different ice cream products. There is no way they were out of ice cream unless they had lost power for a day or something. It was just completely nonsensical and made me think they were maybe trying to fulfill my order out of their own warehouse because they had 90% of the stuff there -- and 90% in crunch time is maybe okay? That was maybe the first nail in the coffin.


> I'm paying 15-20% more for groceries just on line-item price.

In San Francisco at least, almost every store is listed as "Prices are same as in-store." Target and Whole Foods have "Everyday store prices," which means Instacart doesn't match sale prices. Costco and Cash&Carry are the only stores where Instacart prices are not matched.

I'd expect they'd get called out right away if they weren't honoring this.

But if you agree to a service fee and tip, you'll still end up paying 10%-20% more.


Yeah, they say that, but I challenge you to do the experiment I did -- put some stuff in your cart you use every week on instacart and safeway.com and compare the total.


I'll try it. I expect that would be an actionable case of false advertising.


I'm an avid Instacart user, and I refuse to pay the service fee, nor the tip.

Companies need to pay the drivers fair wages, and charge the customers enough to do so. Don't push that responsibility to the customer.

Also, the service fee is perfect example of a Dark Pattern[1].

The actual service fee option (which is pre-selected at 10%) is hidden below the fold in the iPad app (and iOS?) checkout widgets. You have to scroll to see it, but it's aligned just perfectly, and with a hidden scrollbar, to hide the additional options. If you're not looking closely at the final cart total you'll never notice the extra 10% charge.

[1] https://darkpatterns.org/


Yeah, I'd prefer to not pay the service fee, or the tip, but realistically by not doing so you're screwing the delivery folks, who get deliberately underpaid by companies like Instacart.

If there was an organized effort, and it was actually sending a message, then great, let's all do it! But really all you're doing is stiffing some poor underpaid delivery person.


Where I live (Seattle) we've passed minimum wage law increases ($15, on a 7yr schedule) that has already resulted in many restaurants adding an automatic & non-optional 20% gratuity to checks, where the fine print says it will be shared between front & back staff.

So yes, there's an organized effort and it's making a (slow) difference in shifting the culture of companies under-paying their employees and expecting customers to make up the difference.


How does that work? It seems like raising the minimum wage would make it less necessary for restaurants to add a gratuity, not more.


They do it instead of raising the prices on their food.


The gratuities are usually counted towards the minimum wage, i.e. Hourly wage: 5$/hr, Gratuities: 10$/hr.


I see, thanks. In that case the customer sees the gratuity on the bill and then presumably doesn't feel the need to tip? So if I understand correctly this is kind of a way to run a no-tipping restaurant located in a place where tipping is part of the culture.


Yes. There is no tip on top of fixed-service-fee restaurants in Seattle.


True, but if more people would do it, no one would start working for them in the first place and they would be forced to raise the salaries.


That isn't how it works. The folks talking these "gig economy" jobs do it because they don't see other options being viable. They aren't casual upper-middle-class folks with reasonable incomes looking to fill their idle hours with side-work doing grocery shopping.

The presence or absence of tips may influence some, but not all, and I'd speculate not the majority.


I'm glad I'm not the only one who doesn't tip and tries to avoid the service fee. The problem is that often most of the desirable delivery times disappear unless you've opted to pay the fee.

I agree these are dark patterns. Better to just keep the transaction obvious and clean and leave out tip shaming of any kind.


Of course you have the right not to tip, it's optional after all, but many people do choose to give tips, and then the question is whether part of the tip is being skimmed off by Instacart.

Restaurants have paid large fines under the Fair Labor Standards Act for tip skimming; I have no idea if FLSA applies here, but if a consumer chooses to tip, s/he has a reasonable expectation that the money will be going to the person providing the service and not to the person's employer.


Do you also not tip at restaurants? Cultural norms are what they are. Just because you don't like them isn't a good reason to screw over working people.


Always tip a fixed 5$ if you get a good service, why tipping if you don't get a good service though?


$5 on a $100 bill? In the US? That's awful.


I usually tip % but I don't go to eat at places with such high bills.

I can understand the logic though of a fixed tip. There are all kinds of situations where a server spends the same amount of time/effort for each table and get different tips based on what the person ate?

Why does that make sense that I would tip more because I got a steak instead of a burger and the server had to just bring it to me in either case?


That is a logical argument and I guess I understand why one would choose that line of thinking.

I guess I tend to eat at the same 3 restaurants around my house. They all know me and are also my neighbors. The social pressure to not be "that guy" has pushed me to tip generously I guess.


Then that should be apart of the price of the meal.


Cultural norms in the US are different from those where you grew up. Service employees earn a much greater percentage of their income from tips here than they do there.


This mentality is most likely why I usually never tip.

There are people out there that honestly think this is normal behavior. Hey your experience was terrible, but have this $5 your don't deserve.

I live in the US and only tip when service is good.


You are, for all intents and purposes, stealing from people poorer than you.

The default assumption is that customers will tip at least a reasonable amount for all service. If you aren't going to do that you need to announce your intentions in advance. Whenever you go to a restaurant just let the hostess know your plans. That way you won't be deceiving people who are serving you.


If no one tipped it would fuck up the ridiculous system and help the workers.


You have a unique perspective on this situation. I don't have to do shit. I want food, I get food. Not my fault you create a barrier between me and food.

Regardless, I don't go to restaurants because of this.


Also, if I have to state my intentions, then a server should have to say, "we ask for money because I chose to work for a company that doesn't pay well. Sometimes we deserve it. Most of the time we don't"

Or realize how stupid that sounds


There is an important difference between the servers intentions and your intentions. The servers intentions are well inline with cultural norms and hence the default assumption in a restaurant. There's no need to bother restating them. This is what cultural norms are.

Your intentions, on the other hand, are very unusual and not standard. That's why it's important for you to tell people what is going on so that they are not caught by surprise.


But surely it is not common to tip delivery drivers in the US? (Correct me if I am wrong.) Tipping is normally done for 'personal service' type jobs, e.g. where you have someone wait for you during a meal.


Tipping is common for delivery drivers in the US.


Totally agree.


They have tens of thousands of customers, yet are worth multiple billions of dollars (valued at $2bn in 2015.)

That's just incredible.

Let's say they have 100k customers who each use the service every week. That's 5.2m orders per year.

Let's say $100 per order, to be generous. At a 10% service fee, that's $50m for a two-year-old 40x revenue multiple. Before paying their contracted workforce.

This does not make sense.

EDIT

What I'm really getting at is that these are optimistic numbers, in the wealthiest country in the world, that just elected a populist president (partially) due to economic insecurity.

What is the market for +10% on groceries and basic necessities?

EDIT2

It may be tens of thousands of contractors, not customers (thanks @trevyn!) This is confusing, since I'm not sure what verb to use for the end user on Instacart. ("I am _______ on Instacart" (consuming, shopping, grocing?))

Regardless, my number could be an order of magnitude off. I stand by the conclusion.


>What is the market for +10% on groceries and basic necessities?

People who live in the suburbs without cars.

Cities are successfully discouraging car ownership by making parking scarce near downtown offices and even the suburban transit stations that lead to downtown offices. At the same time, cities aren't permitting the construction of dense, walkable neighborhoods, at least not fast enough to make them affordable. So you have a large and growing segment of the population with:

- A built environment where distances are scaled for driving.

- A hard time justifying car ownership, since it isn't useful for commuting.

- Neighborhoods which are now becoming crowded enough that parking is a hassle, but haven't become dense enough to have useful businesses within a convenient walk. (When they reach this point, they may cease to be affordable).

"Outsourced driving" is immensely popular in such environments. Instead of Target and Walmart and BestBuy, you use Amazon Prime for most purchases. Instead of driving the SUV to the supermarket every week, you use Amazon Fresh, or (in the case of Instacart) pay someone else to do it or you. Instead of going out to eat or picking up takeout, you order from UberEats/Grubhub/whatever. Each use case for personal car ownership can potentially be replaced with a fleet of service workers from further outside the city, and each permanent parking space can be replaced with one of them double-parking for 30 seconds every few hours.

How do the economics work?

- Labor + car operating costs for some contractors < value of the land the people they serve would otherwise park on.

- Delivery fees and markup on everything you buy < parking, gas, insurance, maintenance, and depreciation (by a couple hundred bucks maybe) < rent premium to live in similar apartment in a walkable area (by $1000+/mo) < psychological cost of the tradeoffs you'd have to make, like roommates, to live in high density on a middle-class income.

Whether that's $2bn, I don't know. But I think selling car-based services to the carfree will be a winning proposition as long as NIMBYs and anti-car activists remain simultaneously empowered.


It's also very useful for college students with no cars, that live in off campus apartments with 3-4 people (can split delivery fees, tip, etc).


Very useful for lots of people-- busy parents, office deliveries, people who would just rather pay 10% and save the time, etc.


I think if cities make car transportation a hassle, what will happen is dense locales will see more Aldis, Trader Joes Lidls, etc. (small footprint, high turnover goods at affordable prices) and that will enable more people to walk to their grocer, rather than use shopping and delivery services. These services are basically luxuries. Middle class people with families aren't the ones using these services. Upper class and upper middle, sure. DINKs, sure.


"dense locales "

They have to stop making it illegal to build dense locales, though.

The grandparent makes a great point. Anecdata, but it mirrors perfectly my experience living in a moderate-density mixed use neighborhood (South Park, San Diego). My wife and I managed without a car for several months largely through techniques they describe.


> These services are basically luxuries. Middle class people with families aren't the ones using these services.

I use these services occasionally (2-3x/mo) for a family of five (DI3K). When you're outnumbered and have to play zone-defense against your kids, taking a trip to the grocery store at rush hour is neither fun nor productive (kids are usually hungry by then and late snacking = poor appetite for dinner).

I'd love to see the US cityscape turn into something more akin to Europe's (what you described), but I think you have to instead promote mass-transit (to be better) instead of making car transportation a hassle.

The flip-side though is that car and petrol industry do lobby to prevent electrified mass transit from being viable.


> People who live in the suburbs without cars.

I've ordered lots of Instacart in NYC and Chicago. I used to have it drop off a few things at the office for lunch, and a few to go in the fridge for lunches later in the week. Consider that Instacart will charge 10% to deliver a baguette and some cheese, which can make lunch for several people. This is a way better deal that Seamless.

Seamless charges what amounts to a 25% markup to deliver food which has often taken so long on the way to its destination and ends up relatively unappetizing.

In NYC the startup Maple has tried to solve the soggy Seamless problem by improving logistics. I haven't tried it, though, so I don't know if they were successful.


> People who live in the suburbs without cars.

I live in the suburbs with multiple cars. That said I would love if a service (ideally for grocery and restaurant delivery) was in my area. I just don't feel like dealing with rush hour; or the time it takes to grocery shop. I have tried taskrabbit and hiring someone off craigslist. I had better luck with craigslist (for grocery shopping), yet then all sorts of legalities some up that I don't feel like dealing with either.


Download the app, Instacart might be there. I know it's in a lot of the Chicago suburbs.


eh I've checked all the ones I know of; postmates, amazon, instacart, caviar for restaurants etc etc.


>People who live in the suburbs without cars.

All 10 of them?


I live in a major east coast US city in a neighborhood that has fantastic rail access during peak commute times to downtown but isn't exactly walkable all times of the year.

These services are great for people who live in urban ring communities. I use uber to get downtown, prime same day delivery replaces trips out of the city and while I haven't gotten lazy enough to use instacart, I'm probably going to give it a try one of these days.


How do they get to work? If they don't work, with what money do they buy food?


To get to work, you might walk 30 minutes to a train station, wait 10 minutes, and ride a packed train for another 30 minutes. Many (grudgingly) find it acceptable to do this 2x/day for commuting, but aren't keen to do it for a quick grocery run.

It's easier for public transit to do an okay job with "trunk" routes from the suburbs to downtown at commute time, than to do a passable job with connecting neighborhoods to their nearest grocery stores at all the times people might want to go shopping.


There are inner ring suburbs in the US that have good transit access, short bike trips to jobs, and even dense portions with trendy bars and restaurants, but getting groceries for a family there can still kinda suck. Even if the store is only a mile away, liquids are very heavy.

I've have never used instacart though.


What cities are these dense inner ring suburbs near? The only ones I can think of that would have dense inner ring suburbs are NYC, Boston, or Philly.


Dense was incorrect, in retrospect. Let's say denser than stereotypical suburbia. Single family homes and duplexes, few garages. Subdivisions from around 1910 or so. Areas, which are acceptable for car-less living for some people, but not great.

I lived in Santa Clara without a car for years. It was not terrible. Where I live now is better, technically not a suburb, but a pretty suburban feel, mostly duplexes.


That sounds like a small market that's destined to shrink.


In the very long run, maybe. I don't see NIMBYs losing steam and I don't see the migration into major metros slowing down either. Maybe when the self-driving car comes?


Retailers go where the customers go, though.

Two years ago downtown L.A. didn't have a Whole Foods Market, and Instacart-branded packages were commonplace in residential complexes. Low and behold downtown L.A. gets a Whole Foods Market. Someone at Instacart probably has the right numbers, but combined with Costco delivering more of their everyday stuff, anecdotally I see fewer Instacart bags around.


> Retailers go where the customers go, though.

If they're allowed and if the customers have enough density to support the retailer.


So your argument is that Instacart will profit by delivering long distances to sparse neighborhoods of people who can't afford a car but like marked-up groceries?


Sparse enough for free parking and easy driving < Instacart's addressable market < dense enough to support neighborhood-level grocery stores.


You just described my life and why Amazon gets all my grocery and household goods money now.


Say the average wage is $10/hour. If it takes one hour to go and do that shopping, I break even by paying someone else that $10, if I value my leisure time as equivalent to my wage.

More likely, most Instacart customers earn much more than $10/hour. For someone with a busy work schedule, there might be 2 hours of leisure time available per day during the week. This means that by using Instacart I increase my after-work leisure time by 10-20% per week.

If you consider that grocery stores are more crowded during the weekend, and assume 10 hours per day of leisure time, someone who places one order per week likely increases weekend leisure time by 10%.

Since stores close early on Sunday, having Instacart do the shopping on Monday instead can make a weekend getaway possible that would otherwise have had to end in time for that Sunday shopping trip.

I'm sure some people prefer to wander through the store filling up a cart, searching for difficult-to-find items and waiting behind several people for the checkout clerk to finish bagging all their orders. I do not.

I've also found that Instacart sorts items by price, so it's easy to fill the virtual cart without falling victim to all the end-cap advertising and impulse purchase scams that the stores have going. When I go to a physical store I frequently end up buying things I didn't really intend to, but with Instacart, I only end up with the things I actually wanted.


>I break even by paying someone else that $10, if I value my leisure time as equivalent to my wage.

I value my leisure time at the arbitrary amount of $1000/hr. Have I broken even if I pay $1000 to someone so they'll do my grocery shopping?


For value, yes. If not, perhaps you don't really value your leisure time at $1000/hr.


your value isn't set by your own standards - your value is what someone else will pay you for your time! I.e., the opportunity cost of leisure is the value of leisure.


It's more complex than that.

People on salary earn a fixed amount per month - they don't get paid extra if they work an hour longer in the evening instead of shopping.

People on most hourly jobs have their schedule set by their manager. They can't pick up an extra hour of work unless their manager has some to offer, and not at the time of their own choosing.

People working on their own businesses have an even less direct correlation between extra hour worked and extra income.

Only the very few people who do remote freelance work on an hourly basis have the flexibility to decide between going shopping for an hour or doing billable work for an hour.

For everyone else, the opportunity cost of leisure time is close to 0, but they might be willing to pay for services for other reasons.


> For everyone else, the opportunity cost of leisure time is close to 0, but they might be willing to pay for services for other reasons.

If you define leisure time as the time not spent in paid employment, the opportunity cost of leisure time is actually very high, since each of us has many unpaid tasks that we must do to keep our lives going (such as keeping the living space tidy, stocking the fridge with food, obtaining clothing, etc.)

If we opt for "leisure" and fail to do these things, the cost of rectifying the situation increases.

I think a more accurate way to look at it is that most of us have paid labor (hourly or salaried) and a lot of unpaid labor that we need to do to keep our lives in order. Things like chores, maintenance of our living space, etc.

Leisure time is actually what is left only after we've done all of the paid labor our job demands AND all of this unpaid labor.

For some people, this leaves very little leisure time, but it may leave some extra money that can be allocated to hiring out some of those unpaid tasks in exchange for more time available to do whatever else.


That's true for the value someone else gets from my time, this is about how much value I get from my time.


Yes, that is exactly why people part with money in exchange for things they could do equally well on their own.


Even if you consider the situation robbery, they still broke broke even with a 1k gain and 1k loss.


I disagree. In the example, I think, they've been robbed.


Is it a robbery if you agree on the price _before_ the service is done?


This principal is why we don't make our own shoes and milk our own cows, just at a different scale.


Time isn't really the limiting factor for those two activities.


When I go to a physical store I frequently end up buying things I didn't really intend to, but with Instacart, I only end up with the things I actually wanted.

Specifically what products do you end up buying? I have always wanted some insight as to who buys these items near the register and why, as I rarely see anyone pick them up.


They're not necessarily talking about just those items. The entire store is designed so you buy things you weren't intending to buy. You never said/thought: "Ooh look ice cream's on sale..." and failed to resist?


Exactly, I rarely add anything from the checkout lane area, but I'm often enticed to buy unplanned stuff from the ethnic foods aisle, and now and then I'm taken in by the end-cap displays featuring product pairings, especially if I've been inclined to try a similar combination.


People will do that without even realizing it because they (we, I) instantly come up with some rationalization for why they "really" want it.


That is even easier with a website that has detailed data about your shopping.


Gum and mints, for me. Sometimes batteries if I need them, even though they are cheaper at WalMart or Target.

I don't personally buy things like tabloid magazines, but I'm sure grocery stores have spent lots of time researching this to optimize the placement of these products


Half of my pantry is food I found in the clearance and damaged goods sections. I never go to the store with the intent of buying three big cans of enchilada sauce, but the bent ones are half off and I'll use them eventually...


I'm the opposite - if I can impulsively buy a random snack on an app, I will. In the actual store, I'll feel bad about it during the checkout.


> More likely, most Instacart customers earn much more than $10/hour.

Why do you think that?


I was thinking mainly about the entertainment value of using scarce recreational funds to have groceries delivered, but as someone else in the thread pointed out, there are cases where taking a taxi to get groceries (as I did in college) is actually a lot more expensive than Instacart, so I could see it appealing to an even wider range of people for similar reasons.


The average US hourly wage is twice that, seems like a fair statement.

http://www.tradingeconomics.com/united-states/wages


It makes a lot of sense if you know how perverse financial markets are. The difference between those millions and those billions is the perceived potential of the company. All you need is some investment banker becoming convinced that noone wants to visit physical stores anymore, and suddenly money starts pouring into companies supporting that view of the future, almost regardless of whether they are actually profitable or are creating any real value.


Right, so the question becomes "Why do enough people perceive the potential of Instacart to be billions when a back of the envelope calculation by a guy on Hacker News suggests that's not the case?"

Presumably said investment bankers are capable of doing the same math as Hacker News readers, so why did they still fork the money over when they have many other crazy bets to choose from?


Because a healthy portfolio is distributed not only in the amount of risk (I.e. low vs high risk) but also in economic sectors (I.e. tech/futurism, health, energy, agriculture).

For any given investor, the decision to invest in Instacart or any other "crazy bet" is not made in isolation, but within the context of their existing portfolio, which means that the same investor could rationally decide to either invest or not invest, because that decision depends on the rest of their portfolio.

Back-of-the-envelope calculations on HN are always calculated in isolation.


Here's a secret: most investors lose money.


Well, sure. They usually know they're going to lose money going in, and they can pick all sorts of things to lose their money on. That doesn't explain why the picked this one particular thing to lose money on.


Of course I can't find the source for it now, but during Instacart's last fundraising round they did some really weird stuff. For starters, the investors were only allowed to view their financials in a printed book in a room, and were not allowed to take pictures or write anything down to mull it over and make a decision.

Apart from that, you have to understand that there are a lot of investors, and if you can convince just a few of them that the upside is huge then you've got funding. It's not hard to get traction in a space like delivery where everybody knows it's something people want. But the problem is they get traction by operating at a loss, so when they try to run profitably they inevitably fail as people bawk at the prices.


> But the problem is they get traction by operating at a loss, so when they try to run profitably they inevitably fail as people bawk at the prices.

Well, in a competitive environment like Uber vs Lyft, both companies subsidize the service to the benefit of the customers (and employees) in an attempt to maximize market share.

There is a lot to gain by becoming the market leader in a service like ride sharing or grocery shopping. The market is very big and it's a basic need that most people have.

If anything, I think there is too much expectation by investors that a success in a non-ridesharing market will generate earlier-stage financials that look like Uber's.

With Instacart, the value add is such a no brainer. Imagine if everyone had to go to a shop, park, and walk around picking out mail that had been addressed to them. It would be hugely inefficient. This is why the postal service delivers mail to everyone's home.

The service is considered so essential to the functioning of society that it's viewed as a legitimate state-run monopoly and aggressively subsidized.

Most people spend significantly more time grocery shopping than they do picking up letters and parcels. This is a significant amount of leisure time wasted.

Instacart can also easily swoop in and source certain high-margin goods on its own, or offer price comparison or even auction-style services where merchants bid on the virtual cart and it is fulfilled by the merchant offering the lowest price.

All these are obvious next steps for Instacart, which wisely sees Grocery stores as a relic of the past ready to be replaced by something better.

Grocers are market makers who specialize in understanding demand patterns. This is what makes a grocer successful, but grocers must spend lots of money simply to help alleviate the drudgery of being at the store shopping for one's self. One place near where I live features an elaborate player piano, hot bar, oyster bar, and wine bar!

Most customers don't buy the oysters or a glass of wine, but having those side-acts makes being at the store pushing a cart through aisles feel less like demeaning, robotic drudgery.

Instacart has found a better way. You take out the app, easily search for products, see recently/frequently purchased products, set up a delivery time, and you're done. It all arrives as if by magic.

Maybe someday the shopping will be done by actual robots and the delivery by drone. But even in that world, the market-maker wisdom of local grocers will be just as relevant as it is today, and the high quality shopping experience of the Instacart app will be at least as useful.


You clearly like Instacart, and that's fine, but I strongly disagree with you that they've built something better than the grocery store. For starters, right now they depend on grocery stores existing for their business, otherwise they are exactly like WebVan. Also, grocery shopping is nothing like postal delivery. You don't choose what mail you want, you just take everything that's addressed to you. Obviously this varies from person to person, but some people actually like choosing their ingredients and meals and deciding what they want to eat - the opposite extreme for this is to buy Soylent. Every time I've used Instacart they've made annoying substitutions that cost me money and weren't what I wanted, and the hassle of explaining item for item substitutions with back and forth texts is just frustrating. I've only used it a few times, but I've never had a pleasant experience with Instacart where I got everything I wanted - and this is ignoring the added cost and "convenience" of using their service.

> There is a lot to gain by becoming the market leader in a service like ride sharing or grocery shopping.

There is no evidence of this. In fact, there is a lot of evidence that these companies are losing money.

> All these are obvious next steps for Instacart, which wisely sees Grocery stores as a relic of the past ready to be replaced by something better.

Just because you don't like grocery stores doesn't mean they're going to disappear.

Honestly, you sound like a shill paid by Instacart, but I'm giving you the benefit of the doubt that you just really like their product.


> you sound like a shill

This isn't allowed here, and we ban accounts that do it, so please don't do it again.


> The market is very big and it's a basic need that most people have.

> With Instacart, the value add is such a no brainer.

> All these are obvious next steps for Instacart, which wisely sees Grocery stores as a relic of the past ready to be replaced by something better.

> Instacart has found a better way.

> It all arrives as if by magic.

I should have cited my evidence, but that seems excessively positive to me. I wasn't trying to be inflammatory, I thought he came across as someone trying too hard to promote the company.

I'll try to be less accusatory in the future.


Right, to go from "seems excessively positive to me" (you put that very well) to astroturfing/shillage is an enormous non sequitur that is easy to fall into on the internet. It's corrosive of civil discourse, so we don't allow it on HN.

Actual astroturfing or shillage is of course not allowed either, but that's almost an entirely separate problem from people slinging accusations around over-easily.


Fair enough.


Hah. I wish I were getting paid to do this.

Maybe I do particularly dislike grocery shopping. Everywhere I've lived it's been a real drag:

Midwest: In the store with lowest prices you spend half your time shopping and half waiting to get through checkout. Whole Foods is pleasant but overpriced. Mariano's is somewhere in the middle.

NYC: Great small boutique grocery stores, much more expensive than Whole Foods, unbearably crowded at peak times, packed full of customers who are tripping over each other. Employees look ready to burst from the stress at any moment. Lower-end stores stock a very small number of items and are also overpriced. Not all neighborhoods have walking access to a larger, higher quality store like Whole Foods.

SF: Whole Foods is a zoo and is undersized and frequently sold out. Safeway lacks many of the higher quality items but only offers paper bags which are a nightmare to carry if you walked. Safeway delivers but the quality of service is poor, and you are guaranteed to get the produce they had to get rid of that day. Parking to shop at any of these is a unique nightmare.

I don't think I'm alone in not enjoying most of these experiences, or at least preferring to avoid them most of the time.

Instacart may be losing money (who knows) but likely has ample room to increase prices. Uber and Lyft are both burning money and nobody cares.


Fair enough. Instacart may not be for me, but I'm glad it works for you.


Regardless of how you calculate the valuation this is bad for business.

People don't like companies being disingenuous, and not realizing that treating employees fairly is actually an important part of building a healthy company (putting aside it's the right thing to do).

If they really needed to do this then don't play games. Just explain that revenue growth can make or break a company at this stage so we need to take these actions. Just being honest about the realities of business and your choices go a long way.

This week Uber and Instacart have damaged their brand due to nothing other than poor leadership.


I agree that companies like Uber and Instacart should be doing a lot more to foster employee loyalty.

Who knows, maybe the future of these semi-infrastructure businesses is actually as co-ops, with workers earning a stake that can be worth more in the long term.

I'd like to see one of these companies create a special class of stock and award one unit for every dollar of business each employee participates in.


I'd guess that none of them want that to happen, and it would only be a new entrant who would ever be so disruptive. I hope you're right though, that could be a truly superior business model. You can't underestimate the power of a radically engaged workforce.


True, I think Uber and Lyft are very unlikely to do it. As a consequence, drivers are extremely disloyal and many have two phones, one running each app and they pick on a ride by ride basis which app to use.

I think it's getting easier and easier for a new entrant to disrupt the market by offering a platform that better incentivizes driver loyalty.

It's not necessary to force drivers to switch, only to put the new app on one of the phones they are already using.


Well, you can look over the pond to find out why.

In the UK, which is much less car focused, we've had a successful instacart equivalent, Ocado, for a decade. They're presently turning over about £1 billion per year ($1.25 billion) [1]. Market cap on today's market is £1.5 billion ($1.85 billion)[2].

Now all the major supermarkets home deliver and have for 5+ years. There's been a massive shift in the big chains' store building, they now build small "express" stores in town centres and near offices allowing people to pick up minor things without having to do a full shop. As far as I know, no-one's building large stores at the moment.

And the American market is potentially worth more a lot more than the UK one.

[1] http://www.bbc.co.uk/news/business-31108569 [2] https://uk.finance.yahoo.com/quote/OCDO.L?ltr=1

EDIT: Other interesting note, in the UK, the markup for delivery is free or a fairly nominal charge (£5/$6), but only if you pick a slot in a few days. If you want it sooner, or in a prime-time slot, you have to pay more for those delivery slots. The supermarkets are building the costs into the prices.

Also, here gas costs a lot more and it's almost cheaper to pay £5 than it is to drive to the supermarket.

EDIT2: I should add the small stores have a regulatory reason they're small, UK law means only stores under a particular size can be open more than 7 hours on Sundays.


Tesco has actually been doing this forever. There is a mention of them doing online shopping in 1986!

But they actually launched the product proper, in 1996, where they would give you a CD-ROM and it would then sync the diff of products available when it connected. Very ahead of its time - nearly 20 years.

The US grocery market is so far behind on this it's pretty crazy.


What you might not know? Ocado has built the backend for a lot of those major supermarkets offering online shopping. Another revenue stream for them as they are shopping the technology abroad too


That's not really true. They do it for Morrisons but noone else. They haven't been able to sell the technology abroad yet, and the CEO commented in their last annual report how this was a big disappointment.

To be honest though, the technology is superb. Compared to Tesco, Asda or Sainsburys, deliveries are always bang on time and I have only out of dozens of order had one item that was out of stock, which is much better than the competition who always have to substitute random items in.


It's basically Webvan 3.0.

https://en.wikipedia.org/wiki/Webvan


I was thinking of Kozmo.com which funnily enough also went defunct in 2001.

https://en.wikipedia.org/wiki/Kozmo.com

Although they did more than just food.


Kozmo was more of a courier company, closer to today's Postmates.


I loved Kozmo. I used them at least once a week; I still miss them.


What kinds of things did you use them for and what was the cost? If you don't mind me asking.


Literally anything... In San Francisco, if I remember correctly, they delivered within like 20 minutes. It was basically an online convenience store. At the time I was working really strenuous hours at a startup (that sadly followed Kozmo), so getting basic things that you'd normally run to a corner store for. Batteries, junk food, movies... if a bike messenger could carry it, they delivered it.

It was awesome... funnily though, I don't use any of the other delivery services now; can't explain that.


I used to work for Kozmo.com way back when. If you have any questions, I'd be happy to field them as best I can.


Oh neat! What's your opinion on their collapse and do you think that kind of business model can survive today?


It was the standard "forget profitability, achieve growth and market share." When the crash happened in March/April 2000, the money started running out.

There was some general missteps that were glaring errors both from the outside and inside.

From the outside: no minimum order until a few months before the end. So you could order a pack of gum and a delivery person would bring it out to you. In bike messenger cities, it wasn't awful, but in car cities (Boston), it's brutal.

They also didn't focus on a particular series of products, they wanted to be "amazon in under an hour". Amazon's the only company I know of that's been able to pull off a "we sell everything" model and they didn't start that way (I think Amazon was still mostly books even as late as 2000/2001). That meant massive inventories sitting in warehouses in downtown locations (as opposed to Amazon's distribution centers in the middle of nowhere).

From the inside, setting staffing levels correctly early, expanding too quickly to second tier cities (as opposed to reaching profitability in the larger ones first), and inventory was awful. A couple of inventory stories:

"Why did we just get another 5 boxes of tootsie rolls in? I don't think I've ever seen us sell one." - Me

"We can't ever be out of stock on anything." - Boss

"Well, yeah but could we at least sell ONE box first?"

I was also there when someone fat fingered an inventory order. We were supposed to get 40 copies of The Green Mile for rent and wound up with 400.

I definitely learned a lot there and it was interesting. The model "could" work, but requires such a massive capital outlay and a lot of things to go right that I don't know if someone would be able to pull it off any time soon.


Or ViaWeb 2.0


No, it's nothing at all Webvan. Instacart owns no warehouses, no inventory, and not even any vehicles.


Tens of thousands of shoppers, not customers.


I think you might be right, but this is confusing since an instacart user is also a shopper?

Not sure what the right language is, but I'll revise my post :+1:


Instacart's shoppers are its employees.


I use Instacart because I don't own a car and convenience. When I'm making $60 an hour overtime during the weekend for a 12-14 hour shift, you bet I'm going to be using Instacart for a nominal 10% markup for groceries from Costco.


And you don't need to be a member of Costco to use it via Instacart


It makes sense when you take into consideration investors' expectation for exponential growth. The company's valuation is based on that expectation. If the company stops growing, expect the valuation to pop like a bubble.


Just two dots to connect, instacart removes one of the reasons to drive, millenials don't like to drive[1].

[1] https://www.washingtonpost.com/news/wonk/wp/2014/10/14/the-m...

http://time.com/money/4185441/millennials-drivers-licenses-g...

Etc.


I applaud your willingness to edit. I am bearish on Instacart, but acknowledge that you shouldn't value them based on current cash flows.

It's half a bet on massive growth combined with eventual profitability, and half a bet on some massive non-linear outcome. (For example: search -> ads, or books -> hosting)


Imagine if people routinely traveled to a shop and spent 20-30 minutes collecting mail addressed to them, then traveled home. If mail happened regularly enough, this would be a very inefficient arrangement.

Why is grocery shopping any different? Most people buy pretty much the same stuff on a routine basis. Items have varying shelf-life, making parcel shipment practical for only a subset of items (not to mention the hassle of dealing with all the boxes).

Local grocery retailers are essentially market makers for the items they carry. They also provide parking, merchant processing, and a variety of other services (like store brand items, made-fresh refrigerated items, etc.)

Unless you are a chef looking for inspiration or insist on getting the absolute best looking tomato in the whole store, for most people, the time spent trudging through the aisles is mostly wasted.

In other words, the lack of delivery imposes a significant transaction cost upon obtaining groceries. Thanks to Instacart, I buy a lot more groceries than I used to, which means I spend less money at restaurants. Instacart turns grocery stores into a bigger competitor for restaurants.

Unlike Seamless where you pay close to $5 for delivery of a single meal, with Instacart you can order food for a whole week and pay not much more to have it delivered.

Instacart makes keeping the fridge in stock with just the right items significantly easier and removes the immense hassle of manual shopping/transport.


Thank you for a sensible analysis. However, if you're off by an order of magnitude, 4x revenue for a fast-growing startup in a $582B industry seems reasonable [1]. The key data point is number of customers.

What's a reasonable ratio for customers to contractors/shoppers? Perhaps we could estimate the number of customers from the number of contractors/shoppers. (Of course, "tens of thousands" may be a lifetime value, not currently active ones.)

[1] https://www.statista.com/statistics/197626/annual-supermarke...


>What is the market for +10% on groceries and basic necessities?

Lots of people are willing to pay for delivery even if they own cars though it's not necessarily a huge market. In general, in the US, people haven't really embraced online grocery shopping unless hopping in a car and driving to the store is inconvenient for some reason.

Personally, I used Peapod for a period when I was on crutches but it wasn't great. (Frequently didn't deliver everything, etc.) I'd probably use Instacart now and then today but it's not available where I live. Friends who live in a city but aren't easy walking distance from a good grocery store and don't own a car use it all the time.


I have a good friend who lives a15 minute drive from a supermarket, but has a draining job. He makes good money. He Instacarts everything since he doesn't have the energy or time to do that one extra chore. He certainly doesn't mind the 10% surcharge. That probably not a sustainable market but there are certainly cases where paying 10% makes sense.


Have kids - you'll then discover how amazing and worth it delivery services are.


All you see is the capital angle?

You're hijacking the comments with your company valuation thing instead of thinking about the workers for once as is the whole point of the article.


The parent poster can't control who up votes his comment. Thinking about the capital angle doesn't mean someone doesn't think about the workers. Also, what happens to the workers/shoppers once Instacart runs out of funding?


Source?


Before Instacart was on the scene, my brother and I thought of about a similar service. My brother in his college days used to be a pizza delivery driver, so he had the "real world" experience. Over the weekend, I quickly created a simple dropwizard java jar that would take in two variables - number of drivers, and number of orders. Everything else was randomized to be close to reality - such as delivery times, routes, etc. To be clear this was a bare bone, CLI application. I would run the service for 5 minutes, and collect the metrics. One thing was clear as mud, the more we scale up, the higher the loss. The thing was that my brother kept telling me that I am paying too less to my drivers, and that no one would work for me at that rate. Also, I will admit that my algorithm was a "simple Fed-ex" style hub-spoke model.


Interesting! You estimated the costs using a small program. Have you ever done this with other ideas? Is there some resources which teaches the best ways to do such estimates?

I've done this before with an excel sheet for a specific business my friend was enthusiastic about. It turned out he would have been alright had he gotten a loan.


There is a concept called "Monte Carlo Simulation" that can help on that. Pushing random numbers into a program can be as rigorous as you want.

https://en.wikipedia.org/wiki/Monte_Carlo_method


Very cool story. Love that you tried it, love that you're honest about it now.


Wow, that seems gratuitously dishonest -- especially misleading customers about what's a "tip" vs. a surcharge.

Having an $x delivery fee (paid to the company) and then a tip as a separate item ($ or %) would be fine. Making the "delivery fee" into a "service charge" is itself dishonest; making it adjustable when it doesn't go to the user is pretty bad, too.

I can't tell if this loses them more goodwill with customers or with delivery employees, but it seems like a bad decision either way.


How is it dishonest? It's a fee for the service that one receives. You pay one amount for groceries and another for the service of those groceries being delivered. That's exactly what a service fee should be.

Consumers should understand that services have a cost. Companies should charge consumers an amount that is commensurate with the cost that it takes to deliver that service (unless they operate in a non-competitive market in which case they are free to charge whatever their customers are willing to pay). If there are humans involved in providing that service, they should be paid a living wage.

Tipping is the backward part of US consumer expectation. Not service fees.


You may have missed the part where the service fee is optional and can be removed, or replaced with a tip to the employee. The fact that the fee is optional, instantly makes it not a "fee". Service fees are not a discretionary addon that customers can choose to eliminate.


Yes, you can set it to 0, but they are 100% trying to trick people into not tipping and giving instacart the money. At my neighborhood restaurant they eliminated tips and replaced it with a fixed service fee of 20% they give to the employees. It's common to call such things service fees and to think that goes to the end workers, instead of the corp. It's indefensible to say they didn't mean to trick people into thinking it was a tip for the delivery people.


The article doesn't say that the service fee is _not_ given to workers. It may pass through Instacart. It may all go into a common pool paid to workers. Instacart may take a rake. We simply have no idea. Until someone shows some data, everything that you've said is assumptions.


I didn't miss it. I just think way more information is necessary in order to understand whether or not it's a positive or negative. As originally implemented, it doesn't appear to be in any way dishonest.

My understanding of the article is that the service fee wasn't originally optional. It was a static 10%, required, service fee. No information is given about how much of that fee goes to workers, meaning it's entirely possible that all of it does. It doesn't go to _the_ worker who delivered your groceries, it goes into a common pool that is distributed across all workers.

If 10% is enough to break the barrier into a living wage then this could be a positive change. Workers no longer have to fear having a "bad night" where they have 5 runs to get a single $10 items vs a "good night" where they have 3 runs to get $200 worth of groceries.

They made it optional and mutable when their workers protested.


I don't disagree that tipping has a lot of problems. However, instacart is intentionally using "dark patterns" in UX (names, positioning) to mislead end users into thinking paying a higher service fee goes to the driver.

There was a far easier way to do this (a fixed order charge which is clearly an instacart fee, and then a separate tip clearly marked as per driver) -- the right solution would probably be to do like Amazon and reduce the fixed order charge or eliminate it when customers buy certain high margin items, make large orders, or sign up for a subscription.


Labeling a service fee a service fee isn't a dark pattern. Nothing about "service fee" makes me thing it's going to the driver.

Also, per the article, the service fee wasn't originally something that could be changed. It was a static 10%. Neither you nor I have enough information to know if 10% is enough to pay drivers a living wage. Maybe it should have been 15% or more but there is no way for me to know.

I am, however, very confident that a service fee that goes into a common pool and is paid out across all workers is a better solution than customers tipping.


That service is Instacart's product though.


https://www.instacart.com/help/section/200761924#213895126

Why does Instacart use a service amount?

Instacart is different than other delivery services because multiple shoppers may be involved in a single order. Some shoppers work in stores, for example, while others are involved in driving to deliver an order.

The service amount is used to pay this entire set of shoppers. Furthermore, it helps to ensure that all shoppers are compensated fairly and competitively, and that shoppers are working collectively toward the common goal of providing an excellent experience for all customers throughout the entire order process.

Should I still tip the shopper delivering my order?

Additional tipping is optional. The entire amount you select goes directly to the shopper delivering your order.

Why is there as service amount and a tip?

The service amount is distinct from a tip. Instacart uses the service amount to provide higher guaranteed commissions to all shoppers on the platform. This will help us ensure that shoppers no longer rely on unpredictable tips for the majority of their compensation. Leaving a service amount is optional, and you may set the service amount to $0 in the checkout flow before you place your order.

If you wish to include an additional tip for exceptional service performed specifically by the shopper who delivered your order, you may do so on our online platform, or in cash.


The way I read this is "the service fee is a way to give us more money, so we have more money to pay to everyone who works for us". So then why not just raise your prices and pay your employees more?

If the service fee was split across everyone who participated in your individual transaction, I could understand. Otherwise this is just a way of them saying "a service fee is a way to tip the company, so we can maybe pay our employees more".


Because their basic fee is just the delivery fee. They don't set the prices - the supermarkets do. The service fee is a consistent way for them to generate enough revenue to pay their shoppers and drivers, compared to the variability of user-provided tips before.


That doesn't make much sense to me. There's no difference in labour cost for buying a single roll of toilet paper or a bottle of Champagne.


Why isn't the delivery fee enough to pay for the delivery?


This sounds extremely scummy, and if the story really is as simple as this article tells it I don't understand how the CEO of this company can look at himself in the mirror.

I think a great example of an app that lets me give positive feedback to service people is Uber. They let you get a ride ASAP with as little decision making as possible, and then you can rate it after you get where you're going and you have some down time. If they let me, I would probably leave a tip along with my good ratings. Everything else is invisible: I have no idea if there's a "service fee" included in the ride fare. They don't make me worry about it. They definitely don't make drivers have to hand out paper flyers in order to feed their family.


One of the reasons I prefer to use Lyft is that they let you tip drivers.


That's the primary reason I'm reluctant to give Lyft a try.


I tip my Uber drivers. I just give them cash. Uber doesn't know about it unless the drivers report the tips, and I doubt they do.


Right, but why not offer tipping in the app? I think everyone knows that would reduce the friction for tipping. One of Uber's original selling points was convenience -- not having to carry cash around for taxis. Now they've solved their problem, but who cares about the driver, right?

Lyft simply asks you after your trip to rate and tip, all optional.


Better yet, they encourage it.


> They definitely don't make drivers have to hand out paper flyers in order to feed their family.

I don't know how Instacart works, but could it be that Lyft/Uber drivers have ratings they need to maintain, whereas Instacart delivery people don't? (Someone feel free to shine some light/correct me here.)


Uber has pulled numerous moves that have reduced driver compensation.


> They definitely don't make drivers have to hand out paper flyers in order to feed their family.

Yea with Uber the drivers are just forced to grovel for your 5-star rating or face not getting future fares.


I don't understand the outrage, I like Amazon Fresh even more, next to the tipping box it specifically says in big letters tipping is neither required nor expected and defaults to zero. If the current laws regarding minimum wage are inadequate why not try to pass new laws instead of trying to read between the lines on why Instacart moved an input box and put it somewhere else?

Why keep things murky? If it is against the law we have a justice system, I will not all of a sudden be reminded of greedy bankers on Wall Street being the reason that box was moved to a different screen. Do people benefit when things are less crystal clear? Why do we want them to stay that? Why should the tradition of tipping should still be alive in this country? What are we trying to prove? Who is benefiting? Do we enjoy this sadistic power imbalance every time we get a meal at a restaurant? Is it because it gives us control over livelihood of someone else? How is it any different that the Romans throwing Christians to the lions for their enjoyment? Let's create a society that we think is fair and just instead of trying to take things in our own hands. Engaging in social debate to win over your fellow citizens to see eye to eye with you on things like increasing the minimum wage would be a benefit not only to those at the bottom but also to the society as a whole if that's what you think is the right thing to do.


So Amazon Fresh has an optional tip. Instacart is adding a default 10% fee that goes into their pockets - it is not a tip. And they do not pass the 10% fee on to the employees in wages - it stays as part of their bottom line. Higher-ups realized just how much the tips are worth, are now stealing them by default behind a purposely confusing interface that their customers cannot understand, and pocketing the difference while affecting their employees' income.

This is 100% nefarious. There is no reason to have both an optional service fee and a separate optional tip. It's one or the other; combining both options makes absolutely no sense.


I understand it's not the most conventional way of doing it, but why it's someone "higher up" and that's a bad thing? Instacart is not Mother Teresa, its sole purpose is to make profit and I want it to do that as much as it possibly can. I want this service to exist so I don't have to feel like a chimp in a grocery store with a basket going from aisle to aisle in fact why do I even need to justify why I want it to exist? I am willing to give them my money for the services they provide, period.

Again if someone thinks what they're doing is illegal or should be illegal one day then either take them to court or change the laws!


> I want this service to exist so I don't have to feel like a chimp in a grocery store with a basket going from aisle to aisle in fact why do I even need to justify why I want it to exist?

You're asking why you need to justify paying someone else to "feel like a chimp" so that you don't have to?


They may not feel like a chimp and also I like to be the kind of chimp best referred to as a code monkey, thank you! And what makes you think grocery stores with all their deceitful marketing will exist as we know them today? If everyone is a worker for Instacart shopping on behalf of someone else the stores will have to adapt and there won't be any point of distracting those workers with random product placements forcing them to move aisle to aisle since they're only allowed to buy whatever they're asked to buy and nothing more. It seems very shortsighted to think pain can only be transferred and not eliminated altogether with technology if that's what you're implying.


Grocery stores will be redesigned to accommodate personal shoppers just like cities were redesigned around the Segway. If the Segway or personal shoppers were free you might have an argument.


I think Amazon fulfillment centers maybe a better example.


Because it is deceptive to label something a 'service fee' which most people would assume to be charges for services rendered by the feet on the ground.

In other words, it is, by way of social conventions, implied that the money goes to the 'chimp in a grocery store' doing work on your behalf. There is nothing wrong with them adding fees all day every day as long as it is made clear to the customer that said fees are not actually benefiting the actual service provider and consumers opt-in to this transaction. The shady part here is where consumers THINK the services fees goes to the service provider when actually it goes to the broker.


Do you believe it is possible for something to be wrong yet legal?


The problem with bringing up the minimum wage is because it doesn't apply here. Quoting chron.com[1]:

"The Fair Labor Standards Act does not apply the minimum wage payment requirement to independent contractors. However, merely classifying a person as a contractor instead of an employee does not automatically keep the worker from being considered an employee entitled to minimum wage."

Searching around led me to [2], which talks about Form 1099-MISC, which is used for independent contractors. On the other hand, I found [3], which makes me think that some can choose to become part-time employees, but I don't know what the status of that is.

It's also worth noting that, for full-time employees, vehicle-miles traveled are often reimbursed for car usage as part of the employee's work. I don't know if that's being done here, and that would be a major expense. It would also be an expense that your normal full-time employee would not have to pay, as they wouldn't use their car as often.

[1]: http://work.chron.com/minimum-wage-apply-contractors-1758.ht... [2]: https://payable.com/taxes/understanding-your-instacart-1099 [3]: https://www.wired.com/2015/06/instacart-shoppers-can-now-cho...


Is it possible to have a value-added services company that doesn't exploit its labor?

Is your answer going to be self-driving cars? What about alternatives that don't fundamentally replace the labor?

In my opinion, it is impossible to achieve venture capital goals and pay service labor commensurate to the value it delivers.


Costco and Trader Joe's workers supposedly get much more than minimum wage although not venture capital based. It isn't an economic law.


Profit has to come from somewhere. You can't reimburse the workers the full value of their labour if you wish to make a profit. I'd say that counts as exploitation. Unfortunate, but thats the reality of capitalism.


"You can't reimburse the workers the full value of their labour"

But this is exactly the point.

* Assume that hamburger ingredients cost $2. * Assume that hamburgers sell for $5 each.

==> Net added value per hamburger is $3.

* Assume that a worker can make 1 hamburger per hour manually. * Assume that the same worker can make 10 hamburgers per hour after the business owner has invested in a $300 hamburger machine. * Assume that the same worker can make 100 hamburgers per hour after the business owner has invested in a $1000 hamburger machine.

==> Is the "full value of the worker's labor" $3 / hour, $30 / hour, or $300 / hour?

The worker's value add is not solely dependent on the worker and the products being created, but also on the capital invested by the business owner (and other factors). Just because the worker is not paid the entire economic value added being produced by the business does not mean s/he is being exploited.


Is value created by labor necessarily the only way to create value? Can labor by itself cost $10, I pay out $10, but when I combine that labor (a largely undirected force) with thought (scheduling, order placement, etc) I get a multiplier over the labor?

It seems like it should be possible to do this. I pay for raw, undirected labor. It's like raw iron. When I use my skills for planning (speaking as the management for the company), I can pay full price for labor, but get synergistic effect not possible without thought? To keep with the iron reference, in the end I produce steel or even better a car. Seems like the labor to extract the iron met a multiplier of my metallurgic enhancements.


The mistake here is the assumption that value comes from labor. Value is inherently subjective, depending on what the purchaser is willing to pay for, not due to intrinsic properties of whatever the good or service is.

Suppose in your raw iron example, instead of making steel or a car, you make an inferior product because either you or the people who work for you are incompetent. Suppose you make the 1960 Chevrolet Corvair, a car so horrible that it inspires the book "Unsafe at Any Speed" by Ralph Nader.

Even though nothing about the product or the labor used to produce it changes, your product loses value immediately because people don't want to buy a dangerous car. Your hypothetical multiplier turns negative overnight, even though your car is just as unsafe before the book as it was afterward. If the labor and your intelligence were the source of the labor, the value of the car should not change just because Ralph Nader says it's dangerous.


Sure, but there's some space between "full value of one's labor" and table scraps.


Of course, but when the decision of where the workers pay is on that scale is taken out of the hands of the workers, it tends towards table scraps then full value.


The two inputs to production are capital and labor. You need to make profit by paying below market rate for capital (like a bank borrowing from the Fed) or by paying less than the value created by labor.


I think this argument takes a relatively small set of companies a generalizes their exploits across the larger economy. Isn't it the case that most service companies in the west do not exploit it's labor?

The people involved in customizing your car configuration prior to it being delivered to the dealership are not, to my knowledge, exploited. Most laundromats in my area do bag service, those workers don't seem to be exploited. I feel sure that the list goes on.

There are some common threads amongst companies that are exploiting their workers:

1. They are b2c companies. 2. Most seem to be venture backed. 3. The worker they employ are mostly unskilled. 4. The law doesn't seem view the current treatment of these employees as illegal in any way.

#1 seems most significant to me, the price that a critical mass of consumers are willing to pay for the value that unskilled workers can provide seems to be too low to build a large business on the back of.


> Price that a critical mass of consumers are willing to pay

Sure, but Instacart is demolishing a very worker-popular tipping feature. That suggests that actually, there is a critical mass of consumers willing to pay more.

The question is, why does it matter to Instacart so much that some consumers pay less than what they're willing to pay?


Your comment is 100% assumptions.

> Sure, but Instacart is demolishing a very worker-popular tipping feature. That suggests that actually, there is a critical mass of consumers willing to pay more.

Nothing about this article says that to me. Nothing.

At least one worker has given this information to someone who tweeted the information whose tweet was picked up by recode. We don't know if tipping is "very worker-popular" we know that some workers asked the company to change it back and they half capitulated.

I'm personally a fan of charging higher fees and paying all workers the same living wage. That's effectively what a static service charge does.

> The question is, why does it matter to Instacart so much that some consumers pay less than what they're willing to pay?

We also don't know that. Do you know what the average tip was on instacart before this change? So you know that a 10% static service fee is lower than the average tip before now? Do you know if brown workers were tipped less than white workers? Men more than women, the inverse?

We don't have the information required in order to make the judgements that you've decided to make.


If the process is entirely automated and consistently deliverable? Sure. But then that's not really exploiting labor.

For me, if I wouldn't be comfortable asking a neighbor who was less well off than me if they'd mind dropping off my laundry for $10 a month, I'm not going to do it via a shiny website.


I think it's possible if the labor owns the company.


So then your answer is no, because then the venture owners don't own the company.


I didn't realize your comment exclusively pertained to venture owners. Even so a venture owner could sell the company to the employees and move on to their next big thing.


You're right that it's something a venture owner could do.

But then, you'd be surprised at how many highly-compensated programmers never bother to exercise their options. The same ones who then go on Hacker News and complain about bad treatment of workers, and how if only they owned the companies.


I not only complain about how workers are treated, I'm also active in the political process to effect social change for workers. I've also exercised all of the options I've vested at the startup where I'm employed.

Careful with them broad strokes Tex.


> But then, you'd be surprised at how many highly-compensated programmers never bother to exercise their options. The same ones who then go on Hacker News and complain about bad treatment of workers, and how if only they owned the companies.

This reads like an oddly specific claim -- do you have examples?


Not a US citizen but I find the whole tipping experience rather stressful and an additional item to worry about. I like it that Uber has it built into the service and there's only one thing to pay. I'd rather pay a flat increase on the menu and expect higher staff salaries than to have the delivery boy/waiter be at my mercy of tipping.


I am a US citizen and I completely agree. I'm used to it in restaurants, but other situations have me searching online to see what's expected, and worrying that I got it wrong. I'd really like to see the whole concept die.


I'm with you on that. The whole tipping business is out of control in the US! I only tip outside the US if I feel like incredible service has been provided, else expect my fees to cover the cost of the service.


Note there have been several articles about how some Uber drivers give lower ratings to riders who don't tip in cash.


I often take Pool and have seen most drivers giving 5 stars to co-passengers even though they didn't tip. In SF nobody tips anyway.


How could anyone ever know this? Uber doesn't even have this data, since the tip is in cash.


I've seen Uber drivers discuss this on forums. For some drivers, 'no tip' = 'no 5 star rating for the passenger'


Well now I don't feel so bad about giving them 3 stars for adequate service.


What are the implications for a passenger with a poor star rating?


I've never tipped in hundreds of Uber rides and I have like a 4.9 last I checked. Because I'm not a special snowflake I would think that most people have a good rating. But if you don't and there are options of who you can pick up, you gotta think that someone with a 4.5 would be picked up over a 3.5.


So someone with a 3.5 customer rating will just have to wait longer?


This is just an anecdote, but I have a 4.87 rating and have never tipped in cash unless the driver has done something extra for me.


I think Instacart's other justification for this is that multiple people are now involved in procuring your groceries. One person shops and another delivers. If you tip in cash, the shopper gets nothing.

Can't speak to if this is their real motive, but does seem to be in line with other criticisms of tipping (e.g. waitresses making much more than kitchen staff).


This is a misdirection and Instacart knows it. In the old system, the shopper got half the tip. Source: I worked as an Instacart driver for fun.


Ah, sad to hear that


When are we as a society going to tire of company executives feigning stupidity and ignorance when it comes to these very deliberate actions? All these executives--and likely all the developers, too--know exactly why these business model and app changes were made. The reasons given in the article are completely accurate.

It can be boiled down to this: Money > People.


I have been reading a lot about Russia and China recently, and I'm struck by just how much more realistic their citizenry is compared to America.

I think it ultimately boils down to how real power operates in the countries. The average Russian or Chinese citizen is way less powerful than the average American citizen. If they have a grievance to make, whether it's against a local or national policy, Russians and Chinese have way way fewer options.

Whereas Americans, if they feel aggrieved at the state of their world, can turn to any one of many many many political organizations that exist solely to collect and distribute that outrage and drive results. We may not be completely 100% satisfied with those results, but it's better than relying on the legal process.

This network of civic participation has mostly replaced the usual role of electoral politics and Americans believe in their system, secure in the realization that if some bullshit is going down, outrage will be generated and justice will be served.

The last election threw that whole system into critical disarray. It got yoked into the service of Donald Trump and the Republicans because liberal Americans trusted the system enough to stop looking to see how it was being used. Trump realized he could game the system to get elected and did exactly that.

The critical insight here is that Americans are not stupid, and they are not ignorant, they just believe in the power of systems and institutions and want to just be able to rely on them to drive better results over time. We shift public attention gradually away from everything, and slowly onto the parts of the system that aren't working.

In Russia and China, public arms of policy-making are non-existent. Citizens must therefore be extremely careful about picking their battles.


> outrage will be generated and justice will be served.

Trump is the personification of the outrage over illegal immigration, crime, bad trade deals, and the Neocon (globalist) wing of the Republican party.

> liberal Americans trusted the system enough to stop looking to see how it was being used

Umm, what? For over a year, liberal Americans were aghast at the rise of Literally Hitler and made no bones about sharing their opinion on the matter.


> Trump is the personification of the outrage over illegal immigration, crime, bad trade deals, and the Neocon (globalist) wing of the Republican party.

Exactly, it's the system working for the other side of the country. They didn't have nearly as good of a grassroots outreach mechanism, they finally built one.

The two sides cannot agree on what justice means. That's ultimately a national question and so it had to be settled in the election. It's the Republicans now that get to decide what justice means, and liberals get to lick their wounds and retrench.

The direction the world is moving in is liberalism. So this can only be a minor setback.

> Umm, what? For over a year, liberal Americans were aghast at the rise of Literally Hitler and made no bones about sharing their opinion on the matter.

Right, they pressed the outrage button thinking it was going to fix the problem, like it usually does. It didn't because Trump outmaneuvered them.


I'm curious as to why you think the world is moving towards liberalism.


Ultimately it's because of the Internet. Sharing of ideas, remixing them, iterating on them, that's all the province of liberalism. Holding on to tradition, resisting modernization, that's conservatism. Liberalism is the rising tide raising all boats. It's always happening, everywhere, behind the scenes, in people's minds. Even the most conservative person has liberal ideas.

Liberalism is imperative, conservatism only impairs. You can have individuals, groups, communities, industries, cities, provinces, countries, even whole blocs of countries espousing conservatism, but the natural trend is towards idea evolution and that's liberalism. It might take a long, circuitous route to get there, but when you take the totality of the whole world, and the logic of ideation, that's where it's going.


> the rising tide raising all boats.

FYI, usually this rhetoric is used by rich people when they are trying to screw you.


Lol, in my defense it's a more of a philosophical point than an economic or political one.


So Liberalism is good and improves things, and therefore everyone will choose it?

Assuming the first part is true, just becomes something is better does not mean it will be chosen, so I don't think that argument works.


Well, no, I'm talking about how things evolve. There's this big myth in history about technological, economic and social decline. That it's been up and down for 2000 years, fits and starts. It's not the case, things slowly and continuously evolve, you just only notice it happening in fits and starts. Also the mind is designed to focus on negative things, so we assign more weight to the negative than we would if we were being more rational.


How do you explain the fall of Athens and Rome, and the very long centuries of dark ages in Europe and West Asia?


The dark ages are a myth. This is becoming more accepted amongst historians. It's an artifact of our imaginations, not a valid narrative. Athens and Rome are only two of countless agrarian kingdoms / empires of the day. When Rome fell, the rest of Europe mostly just went on without imperial control. More wars were fought but warfare of the day was exceedingly resource-constrained and not like the total wars we see today. Kingdoms and empires rose and fall all the time, we just focus on those two because their culture survived while the other ones' didn't.

The terminology "dark ages" more refers to the loss of Christian leadership than it does of technological or economic loss. Christians love to frame things apocalyptically and that's what's responsible for the common pejorative view of that time period.

A more valid comparison would be the Napoleanic wars, but there too, you can see that really the wars were only possible because economic advancement allowed nations much more resources to devote to war. Europe had to learn how to civilize warfare three times. Each time happened after massive economic advancements.


Interesting, but it seems you're coming from the position of having already concluded what the answer is, and then going back and fitting everything to that precondition.


Reassessing historical narratives you grew up with has that effect. I'm coming to find out that nothing is as it was taught. The information you gain today should be prioritized over the information you learned yesterday, just because it comes from a better and more informed perspective.

I've been spending lots of time on Quora, I eventually learned that not a single way of thinking about events I had when I was younger was anywhere close to truth. Ignorance is the norm rather than the exception. You have to reify past events to fit current conclusions because you have no past understanding of those events that's reliable.

I'd call it "post-history" but if anything history is more important.


Definitely, but that doesn't change the simple logic that if you have a conclusion, it's very easy to lose the truth of a historical situation by instead selecting an explanation that you want.

Let's say there is a historical event, and you know of 3 different possible explanations. Explanation 1 is what you learned as a child and it's clearly wrong now because of new evidence. Explanation 2 and 3 both fit all known facts and either one could be correct -- but only explanation 2 fits with your conclusion that the world is always heading towards liberalism (or conservatism or whatever you believe).

Do you pick explanation 2? Human nature says you do, and it's something we need to be aware of.

> You have to reify past events to fit current conclusions because you have no past understanding of those events that's reliable.

Do you really have to?


> Do you really have to?

Think about it. You have an understanding of history. You can't not have an understanding of history, unless you live under a rock. As you study history more and more, you realize that all of your prior understandings of history are wrong.

What do you do then? You don't have a past anymore. The only thing that's making sense is the present. So you re-examine the past in light of the present. That's reifying. It's your only option. You're reifying today, you're going to reify again tomorrow. Because the thing doing the understanding is changing every day, so you need new understandings. You're not building, you're constantly demolishing.

Logic is only as good as your premises. If your premises can't be trusted, you need to go back to the drawing board.


Following that line, what use is history at all anymore? It's now just a hammer we can use to propagate whatever new idea we currently have. I don't really see the value in such a history.


It's called Hanlon's Dodge, built on the Hanlon's razor principle. it'll keep happening as long as there's a popular belief in Hanlon's razor.


"If only the Czar knew!"


> the developers

No, blame management. Not until programmers have a union masquerading as a professional association that backs us up, like the AMA or the ABA, and we enjoy much greater autonomy and a much stronger position from which to say "no," should we be made to shoulder the blame along side management.


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